U.S. Corporate Credit Swaps Advance as Budget Negotiations Stall

A gauge of U.S. corporate credit risk rose after budget negotiations stalled in Washington as House Republican leaders scrapped a plan to avert the so-called fiscal cliff.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, climbed 3.1 basis points to a mid-price of 91.8 basis points at 7:55 a.m. in New York, according to prices compiled by Bloomberg.

Investor concern is mounting that a failure to reach a compromise on the budget will harm the economy, hindering companies’ ability to repay debt. House Speaker John Boehner dropped a plan to allow higher tax rates on annual income above $1 million, yielding to anti-tax resistance within his own party. House members and senators won’t vote on the end-of-year budget issues until after Christmas, giving them less than a week to reach an agreement to avert more than $600 billion of tax increases and spending cuts set to take effect next year.

The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To contact the reporter on this story: Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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